Analyst: Microsoft Facing 'Flat' PC Market

An analyst with financial services company Morgan Stanley downgraded expectations for Microsoft's stock in the near term, pointing to future sluggish PC demand.

Adam Holt indicated in a Morgan Stanley research note that Microsoft's stock is "the cheapest stock in our coverage universe" and that Microsoft was already pricing its stock with low expectations for future PC and Windows sales, according to a Barron's news story. Nonetheless, Holt cut his revenue estimate for Microsoft this year from $83.5 billion to $79.9 billion.

PC sales will be flat or low over the next two years, Holt predicted. And even though Microsoft sells other products besides Windows, the overall PC downturn will still have a negative effect.

"Given the continued sluggishness in the market in aggregate, we expect total PC units to be flat to down low single digits in CY13 and CY14," Holt wrote. "While MSFT's revenue has disaggregated from the PC market, the stock still tends to track it to a degree."

Microsoft's announcement this week that it sold 60 million Windows 8 licenses since the product's launch in October was factored into Holt's analysis. He remained pessimistic that Windows 8 would inspire corporate purchases of PCs. Holt expects corporate PC purchasing to shrink from 5 percent to 0.25 percent.

According to Holt, Microsoft's stock could get a boost if Microsoft were to sell Office for the iPad. Also, Microsoft could be helped if Congress gave the company a tax holiday, which might bring back $50 billion in cash. Microsoft avoids paying U.S. taxes by parking much of its cash overseas, which is a practice common to a number of U.S.-based high-tech companies.

Holt's predictions come a couple of weeks before Microsoft's actual financial reporting. The company is scheduled to announce second-quarter earnings for its fiscal-year 2013 period on Thursday, January 24.